The Pros and Cons of Self-funded Health Plans

In a self-funded health plan an employer pays for employee’s health costs out of pocket as they’re received instead of paying for insurance premiums. These plans can be a great approach to providing healthcare if your country doesn’t have a public option, depending on the company’s approach. Ideally, employees will never take on any financial risks in regards to their healthcare. We’ll take a look at the pros and cons of self-funded health plans below.

Pros and cons of a self-funded health plan
Photo By Ali Yahya 

Advantages of a Self-Funded Health Plan

1. Less costly: Self-funded health plans are generally cheaper than insurance plans as businesses are not required to pay margins to an insurer. These are known as risk margins. 

2. Flexibility: The employer may customize the goals which the plan aims to complete, as well as having full control of the health care needs of the employees. This creates a safe and stable workplace. 

3. Full control of healthcare providers: An employer has the freedom to choose and monitor a healthcare vendor. Every vendor has many different options at a certain price, which gives employers control over whom to choose depending on the company’s budget and employee’s needs.  

4. Non-Subject to state insurance laws: The employer does not have to worry about complying with health insurance regulations. It is important to note that this does not mean that there is no law that a self-insured company must follow. 

5. No premium tax: There is no need to pay health insurance premium taxes, which range from 2-3% of the premiums dollar value. 

6. Improved cash flow: Employers have more control within their cash flow, as well as extra savings possible due to nonexistent insurance payments. 

Drawbacks of Self-Funded Health Plan 

1. Unpredictable expenses: Expenses will be unknown. Therefore, it may be strict when it comes to funding. Cosmetic and minor issues are less likely to be covered as a result.   

2. High risk: Employers yield high-risk losses if any considerable claim is filed. For example, if an employee accrues $100,000 in medical bills from a car accident, the company will have to pay for that.  

3. Financial Losses: Employers will be responsible for any losses to the company due to the usage of the plan as it is self-funded. 

4. Chance of fraud: Employees may abuse employers’ plans if they are enticing. 

5. Not compliant with every business model: Companies with poor cash flow will find that self-funded insurance plans are not a viable option. 

There has been a huge increase in businesses that have switched to self-funded health plans. These are plans that both the big and small companies are in need of as it provides flexibility and has money-saving benefits. Now, as mentioned before, it all depends on two factors. The first one is based on the model. The model is how the business functions and, most precisely defining and owning it with pride. The second factor is the demographics of the business, so if you are considering the self-funded plan, do your research as it varies. 

Alan Behrens
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